Many investors are delusional, especially millennials
The 2008 housing crash forced millennials to get real about their diminished financial prospects. Yet many young people remain deeply unrealistic about how much money they will earn on their investments.
Research from U.K.-based asset management firm Schroders shows that millennials (those ages 18 to 35) expect annual investment returns of 10.2 percent. That's higher than the historical averages of 9 percent to 10 percent. More important, it represents a much bigger bang for their investment buck than they're likely to get given today's historically low interest rates around the world amid slow global growth.
In 2015, the S&P 500 delivered a loss of -0.7 percent. As of May, the current average forward-12-month stock yield across 11 major indexes is 3.8 percent, Schroders said, citing Bloomberg data.
Millennials certainly aren't alone is wildly misjudging the current investment environment. People 36 years and older expect average returns of 8.4 percent. Meanwhile, high hopes seem universal. U.S. investors are counting on returns of more than 11 percent, Schroders reported, as are their counterparts in places like Brazil, India and South Africa. Chinese investors expect gains of nearly 10 percent, while Germans are only slightly more in tune with reality in aiming for 7 percent returns.
The Schroders Global Investor Study surveyed 20,000 investors in 28 countries, including the U.S., between March 30 and April 25. The study focused on people who planned to invest at least 10,000 euros (roughly $11,200) in the next 12 months. London-based Schroders has nearly $500 billion under management.
Investors are often unrealistic in another way: How long they think they need to keep an investment before it pays off. Investors around the globe generally expect to hold their investments for 3.2 years, found Schroders, which advises holding an investment for at least five years. Less than a fifth said they kept investments for that period of time.
"Our findings suggest many investors expect too much in terms of investment income and do not realize how much they need to save or for how long," Schroders said in the study. "At the same time, with average holding periods still relatively short, the mantra that equity investing should ideally be a long-term undertaking is going largely unheeded."